Real Estate Deal Structure: Negotiation, Financing, and Pricing Strategies

All right, welcome to this week's Deal Structure Sunday with Master Rick Aviati, High 6, and soon coach-to-be.

Welcome, Rick. Thanks, Chris.

And Mr. Nick, the buyer master. So we wanted Nick on for some help here because he does so much with Rick, but in particular with this, this deal. So Nick, welcome to The Deal Structure.

I'm excited to be here. Before we started, I said I'm super happy to be involved with whatever Rick's doing, and that's because he follows, follows direction, and that's why he's seeing results. Yeah, he's coaching well.

Yeah, absolutely. Everybody likes hanging out with Rick. All right, Rick, I already— I should appropriately call you Maverick. So if I forget, that's your real name. So I appropriately threw up there owner financing and for sale by owner, but I stopped there. Uh, talk a little bit about how long this for sale by owner took.

So we initially, I initially contacted the seller back in October 2021.

Okay.

He had, I believe, 6 properties, but there were 2 of them that he was going to start with. And Steve Murnick, went on the other— the original appointment with me. So that was when we first contacted him. Then there was a lack—

Wait a minute, let's back up. So when you did this, you were still at a Star level associate, I take it, if Steve went with you, or no?

I was, I was.

Interesting. Okay, so for the viewers to know, Rick's a High 6 member— actually, sorry, Rick's Chairman now. He— it's a private level above High 6. But, uh, at that time he was a starter, October of '21. So you and Steve did the appointment right around then, or you waited till later date?

Actually, it was a later date. Uh, I sent the options to him that Steve and I put together back in November of 2021, and we sent the P&S in March 2022.

Wow.

And then so we had some other things that came up like a failed Title V, which of course, you know, a septic system. So there were some things going on there and then the seller went dark on me for a bit. But yeah, that's basically how it all started.

Wow. So you're talking 6 months-ish to get this deal going from initial contact?

Actually, from initial contact, he went dark until About September of 2022. And then he contacted me and he said, well, I went with somebody else on the other property, not this one.

Which we'll talk about at the end. That's interesting in and of itself.

Yeah, yeah. And then he went dark again. And then out of the blue in this past November, he called me and said he'd like to move forward on this property.

So it's actually—

yeah. It was 435 days from initial contact.

All right. Could you be a little more exact? No, that's awesome. And then, all right. So any other nuances with the seller side of things that we should know before we jump to buyer? And that's a lot of feedback from you and Nick at that point.

Well, the seller did want $300,000 for the property. There were no comps at the time when we did the initial options in the P&S. Um, so it was either do an appraisal or just take it to market and see how the market responded. So yeah, that's where that went.

Okay, and we'll talk about how you priced it with Nick and why that's important and all that in a second. What did you set up for an initial term with the seller? Owner financing, what's the term?

It's 48-month owner finance.

And it's— I know we're going to get to the numbers, but is it principal only?

It's principal only.

Okay. I mean, we say it like nothing and you answer it nonchalant, but I'm telling you, podcast after podcast after podcast that I'm on, people go, wait a minute, go back again. You don't pay any interest? So no, it's principal only. So when Rick makes a payment, you're going to see how powerful this is on payday 3. So there was no debt. It was free and clear, correct?

Correct. Great.

And you— and the price you ended up going to purchase sales agreement and closing on was how much?

$276,500.

There's— is this— there's— I believe it's actually a story behind that, right, Rick?

There is.

The $276,500?

Yeah, exactly. He started out higher. The seller started out higher. What's that?

Oh, okay. This is coming together for me now. So you guys started higher and then, Rick, you couldn't sell it. So you and Nick came up with, let's renegotiate with the, with the seller, correct?

Yes, it was. We were coming up on the 90 days of trying to find a buyer, and I repeatedly had people say, well, there was a property a mile away or 2 miles away that was bigger that sold for $275,000, I think it was. And I finally went to the seller and said, look, you know, this other comp that's out there now is killing us. And he quickly realized he needs to drop the price. And that's, that's why he did that.

Almost 25%. I just, I just want to bring up some important points there. The important thing is that this isn't a number that Rick and I came up with and offered him this price to go back to him at. I said to Rick a number of times that, well, let him give him the cost and just say, hey, we're just— we're coming up short. We're getting buyers to the property. What would you be willing to do if we could get a buyer in there that could cash this thing out and we could all move on? And he got back not with a specific number. The seller came back that he would go to this price. So I think it's important to mention that this isn't a number that we came up with.

The—

in this case, the seller makes their own offer.

There's another important piece here, Nick and Rick, uh, and I like your comments if there are any additional ones. And that is, so for the viewer to know this, so Rick put this under agreement, but you notice this whole negotiation thing was going on. Why? Because he had a 90-day— the seller accepted a 90-day window Contingent upon finding a buyer to then close. Rick's not going to take a risk. Now, he may treat it differently in the future because he has other deals going on, but when he was newer, you don't commit to that and try to come out of pocket. So it's a little different when Rick calls back and says it's not, it's not idea in theory now, it's no, I have activity, I, I just need a lower price and we can get this done. Different conversation.

Okay.

Right.

Uh, real cool. And then you and Nick now kick into how you priced it to sell, and then we'll do the paydays. Because this backdrop in this context, I think, is important.

So initially we had it on the market for $1,950 per month. And obviously we don't advertise the selling price, but it was at $329,900. That's what was killing us. So we started at $1,950, I believe it is. And then every— I think it was the 30 days, Nick, we dropped—

3 weeks. 3 weeks.

Yep. We dropped it a couple hundred dollars. I was actually away on vacation this final reduction, and Nick said drop it to $1,325, $1,350.

And that's what you ended up selling it at?

Yes. Yeah, it was $1,350.

And what's the price of the house?

The price of the house, the sell price?

Yep.

Sell price was $299,900.

$299,900. Now, I know to the viewer, especially if they're new to deal structures, they're thinking, okay, it's not much spread there. You guys watch what happens when we effectively are making principal payments every month and how that accumulates. So would Nick or Rick, anything on that before we jump into paydays? Anything else on that? Any nuances?

Well, I can tell you that Nick sensed some pushback from me on not having a whole lot of spread.

Some, Rick. You fought me every one of those last reductions. You— oh my God.

I, I, uh, once we looked at the deal holistically, it was like, oh, and then the light went on and I was like, okay.

All right, so let's dive in. And that, that's important for you guys to know if you're watching this on YouTube or wherever the heck you're watching it. Nick works with the coaches, sure, but he also works with the Chairman I6 and a lot of the other students on the fly like this. How do we price it? When do we change it? How do we do that structurally? How do we not get ourselves in trouble? You know, so let's talk about, let's talk about a few things. Let me pre-fill in the monthly payment from the buyer ended up being $1,350.

Yes.

Okay. And then the payment to the seller is how much?

Well, Rick, is that— is that without taxes?

The $1,350 is without taxes. So the taxes were $201. So the actual total monthly payment will be $1,551.

There you go.

Okay. $1,551. But the principal paydown is only $1,350 a month.

The principal paydown is—

Oh, sorry. No principal on that. My bad. My bad. I don't want to confuse the viewers. So your payment—

You're confusing me.

Your payment to the seller is how much?

$1,225.

That's the principal. Okay. Sorry about that. All right. Back up to payday 1. What do we get from the deposit and the buyer? How did you and Nick work that? Did you do the meeting together? Like, talk about the buyer meeting and payday 1, you guys.

So the buyer meeting was another interesting story. So on this particular one, we had multiple buyers, and the one with the highest down payment was from Georgia. However, we cannot have a property— we can't accept a buyer unless they physically see the property. So I finally got the buyer to fly up here from Georgia to see the property, and that's where that went.

So, and that's how much?

Uh, a total of $36,551.

$36,551. $15,551. And does that count first month? So talk about— would you come up with that number?

So it's $35,000.

Yeah.

What their down payment was, plus $1,551 first month's payment.

Okay. Question for the viewers to know how this works. You're going to close on this property. You're going to pay about a month out. You start your note like you would with a bank. So does that $1,551 go in your pocket as payday one, all cash, or does that have to go out?

It goes in my pocket.

Okay, so the whole $36,551 is your payday one?

Yes, it is.

Sweet. All right, Nick, anything on that as far as buyer meeting conversation? Any nuance that is a teaching lesson, or are we good?

Um, yeah, I just think, um, in the past, I know myself and a lot of our associates have wasted a lot of time, uh, with buyers that haven't seen the house yet. and gone through and had a buyer's meeting, even had an attorney signing, and then they show up to the area and physically see it and they say, oh no, never mind, I don't like it. And then they won't return my call or the associate's call. So there's a reason for that.

Yeah.

And that actually sets all of us up for success because if they want the house, then they have to see it. And that gives more time to get interest from other buyers and maybe you're going to get a better buyer. In this case, we didn't find a better buyer, but that's a great example of that.

Well, okay. So on that note though, uh, the ideal situation, Nick, as we do with our properties, is always to have multiple buyers wanting this. Rick, you had 3 super strong buyers, right? And you're going to try to move another one. We're going to talk about it before we end as a teaser, but you're going to try to move on another one right away to another property.

Yes. I had 3 strong buyers.

That's like, that's the ideal situation. So he gets to round robin them a little bit and work the deposits up. Because this couple came in at what, $25 originally?

They came in at $30.

$30. Okay, so you come up a little bit still. All right, let's go to payday 2. So we're paying the owner $1,225 principal only. We're collecting $1,551, um, counting taxes. The monthly cash flow then is— is that the, uh, we'll go ahead, monthly cash flow.

The monthly cash flow actually comes out to $25.

How do you get $25?

Because I'm seeing after taxes.

Well, you got taxes added in, so I'm seeing $1,350 minus $1,225.

No, right.

And oh, you got insurance though, right? Okay, that makes sense. Okay, so $25 net-net after insurance and taxes. And how long did you, Nick, give this buyer for a term? I didn't ask that. You have 48 months with the seller. How long did you give the buyer?

2 years, 24 months.

And that was another lesson that we learned.

Yeah, talk about that next.

When we gave buyers longer than 2 years, it just becomes a thing that, oh, it's not real. It's so far out in the future that I don't really have to do any work. I'll be— by that time in 3 or 4 years, my credit will be okay. I'll be able to buy the house. However, we found that by shortening it up to the majority of our buyers, 90 to 95% are able to get qualified within 24 months, it becomes real to them and they follow through with our whole process, meaning their credit enhancement and really getting on the ball with their payments and everything. And also, God forbid, in case anything were to happen, if you only do a 24-month lease, you're only on the hook for 24 months and then you can make a decision and Hopefully sell it to another rent-to-own buyer because you're going to have another 24 months plus.

Yep.

Or sell it or you're in control basically.

Yeah, exactly. Without doing that, you're not in control.

So increase the price and keep them if you like. Like totally in control. So I love that. Give yourself a buffer and you gave yourself 2 years. So the whopping payday too is $600.

If I did that right, guys, it's $600 assuming 2 years, but full term For 48 months, it was $1,200.

Yeah. And, you know, reality is you and Nick will probably renegotiate this with the buyer and/or seller just to plant that seed in the viewer's mind. Like, this deal is always a deal after the deal. And at the event, like we do at all events, we're going to talk about wealth stacking. And wealth stacking takes a current deal and massages it and changes it and pivots. So this is just a model, guys. And by no means are we saying that this is exactly what you'd do in a deal. We're just giving you an example of a real deal here. All right, so the price premium on this, uh, deal itself is $23,400. $24,000?

$23,400.

$23,400, sorry. Uh, principal paydown—

how many cents on that, Rick?

$1,225 principal paydown times only the 24 months. But let's know what the 48 is if you have it.

Yeah, it's $58,800.

$58,000.

$58,800.

$58,800. Payday 1, we have to take— for the viewer to know, the $35,000 was already paid, so we're going to take that off the net here, right? Remember now, for the viewer, we're not taking the $1,551 off. That went in Rick's pocket and does not credit principal. That was their first payment they were making to Rick, and they make payments to us as a lease. They don't get credit for that. If we were giving them credit for that, there'd be no incentive for them to go get their mortgage. So we— they are just leasing the property. That's why it's called rent-to-own. Rick, that went into Rick's pocket. Um, uh, cashola. All right, so the final paid cash out payday 3 is how much?

$47,200.

$47,000— whoops, how's my writing— $200 is payday 3. So if you take all 3 paydays, Rick, $36,550, $647,000. Now keep in mind for the viewer, we— this will absolutely be bigger because we're not going to get out of this deal in 2 years. I can tell you that whether they get extended or whatever, unless they do everything pristine and they cash out, which they could.

Which does happen.

Yeah.

And we want to, we want to make sure that we're altruistically setting all buyers up to succeed and be able to move forward and cash this out. Would we be okay if they get a loan in 2 years and moved on? Yeah, we'd be okay.

Look, we got Nick, you and I way back at our old office. Had a 5-year deal with someone. They called and said, hey, great news, it's month 11, I'm getting a loan. The house in Holden, Massachusetts. And great for them. The next point, because that's what we want to do, is make them win. Obviously we had less money in it because they get out early, but that's what we're here for, to help them. Uh, total all 3 paydays conservatively then?

$84,551.

Okay, so that's why, Rick, I'm assuming you said, once I saw what was going on, I didn't have a problem reducing The monthly, because who cares literally about payday 2 if you got $84,000 at the end?

Correct.

Yes. Awesome. Um, is there anything nuance-wise or otherwise, you guys, that, that I, that I didn't hit that you're thinking, okay, we should have said that? Anything at all before we tease your 5th deal? Because this is your 4th and then we move on. Anything?

No. Um, the only thing that I did mention previously with the failed Title V, the septic, um, that was covered by the buyer, he did put in, or by the seller, that He did put in a new septic system before you did it.

Yep.

The other nuance is once between all the reductions each month, I had approximately 500 inquiries on that property.

Yeah. So the point is, especially now, we're going to talk about this at the upcoming events, not just events right now. You've got the fastest increase rise. In the last 12 months, you know, mainly in '22, in, in a 51-year history, one of the fastest increases. So you've flushed out a lot of buyers, the conventional market did. So demand for the right properties is extremely high for creative financing. There's not a better time than right now for creative financing. And I don't care if you've seen this in a year, I'm probably going to say that even more. Rick, this was deal 4, just for the Wicked Smart viewers to see this on Deal Structure Sunday. Um, you averaged how much on the first 4 deals, all 3 paydays?

Uh, the average— let me just—

You don't have to be like to the penny. I know you want to be with your engineer brain, but just roughly how much?

Uh, the average was— let me just—

He's pulling up the spreadsheet.

Yeah.

Okay. The average on each painting or total?

Total.

The average was $108,868.

$108,000 for your first 4 deals per deal.

Actually, that's including the 5th one.

But okay, well, let's tease the 5th one and then we'll let these guys get off because this was a little bit longer. But I wanted to do this on purpose. There's a lot of lessons in here with Nick on. That was great to have you on there for that reason. The 5th deal came from the same seller of this deal, Rick, right?

Correct. Yes.

But at the time, if you caught what Rick said at the beginning of this deal structure, he gave one property to another investor and he gave this one to us. The other investor knows about us, is not an associate, did not have the luxury of calling Nick or calling anyone on our team at the time. Steve, or now Rick and I talk all the time, didn't have that luxury. So he— Rick, I think you said he priced it poorly when he tried to buy it and you're getting it even cheaper and he couldn't sell it, right? Am I accurate?

I am actually getting it cheaper than I originally went in with.

And then he did, right? This other investor.

It actually— I get it for what he got it for. Got it. The monthly payment that was being advertised was above market.

And he didn't have that 1-800-CALL-NIC, so he couldn't— he didn't know how to price things, right?

It is also, uh, he had a 6-month buyer contingency on it, and it, it's been 6 months and it hasn't sold.

So now with your reservoir of extra buyers, you told me just this morning you're just going to call one of them, and you and Nick are going to talk offline about this, but you're going to call one of them and slide them to that property and put that under agreement, uh, as you're coming to our event. Right.

Sweet.

Well, congrats, uh, Rick Maverick, on all your, uh, 6-figure deals. The, the challenge now is you're getting spoiled, and you're gonna have a $50 grand deal and go, I don't know, which is still a killer deal. So you set the bar high for everyone. I love it. And just disclosure for the viewers, this is just Rick's experience. He happens to be in New England, so this actually is higher than our average paydays as a family company, me and Nick, and, uh, it's real strong. So I don't want to make it look like this is the norm. It's super strong to have 6 figures on all 5 deals. And so that's awesome, Rick. Keep it, keep it going. No pressure.

No pressure. It's just I've got to say, you know, yes, I pushed back with Nick and I've learned a lot from it and it made a lot of sense after we went back and forth a few times. But this wouldn't be possible without Nick and of course the other coaches and you.

And Rick, again, for them to know, we work on helping people Uh, escape their W-2. And we're sitting on March 27th right now, and I think your official last day of your W-2 with the government is what date?

May 19th.

May 19th.

So again, huge move, 52 days away.

Awesome, awesome, awesome. Uh, Rick, Nick, thanks guys. Rick, I'll see you at the event in just a day, uh, at the Coaches Day. All right, see you guys.

Thanks, Rick.

Thanks.